Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Henry D who wrote (18977)	3/29/2004 2:53:18 AM
From: Elroy Jetson	Respond to of 306849

The current real estate bubble is very similar to the bubble of the late 1980's, although I expect the collapse will be more compressed in time frame because the factors driving the bubble are more global. In the late 1980's Los Angeles declined later and prices declined far more. I was doing valuation studies of Texas and Colorado properties in 1986 where newly built multi-family projects were being sold for 75% less than construction costs. In the same year developer clients here in Los Angeles were entering into building projects we estimated would result in a 35% loss. They always laughed and wanted us to mark-up our estimate of what the finished product would be worth, like they lived in some parallel but separate reality. Not one stopped to think they would actually become bankrupted by the project which they all were by 1990 or 1993 at the latest. They laugh less loudly living in a one bedroom apartment after losing their $100 million net worth. Almost to a person they also became divorced during that period. We have recently seen rents falling in virtually all regions of the country, except for Boston and Los Angeles. Many areas of the Midwest and South are experiencing a significant increase in foreclosures. It's interesting for me to see the current group of developers at work. The experienced developers either don't have the capital to participate in this cycle or are beaten down, reluctant to raise the funds and take the risk. The new batch, like those in the late 1980's, have never seen a down-turn and are supremely confident. Like those in the late 1980's they were previously successful in other fields of business and have stepped up to the more glamorous field of real estate development - much like people wanting to get into the movie business. Like moths to the flame.

To: Henry D who wrote (18977)	3/29/2004 3:31:42 AM
From: Elroy Jetson	Respond to of 306849

Here's a relevent excerpt from Marc Faber in the "Financial Times". news.ft.com Moreover, we know from the experience of Japan in the late 1980s and Hong Kong in the mid-1990s that consumption booms, driven by asset inflation, end with a colossal bust. That can result from rising interest rates, or because stagnating household incomes no longer support the asset bubble as affordability diminishes, or additional supplies coming to the market and exceeding demand. So, given that consumption driven by asset inflation is unsustainable in the long run and always ends badly, what should the contrarian investor do? The least desirable asset in the world is US dollar cash. The investment community can take everything in stride - even a 70 per cent decline in Nasdaq stocks. But interest rates, as low as they are now, compel people to speculate on everything from commodities, homes and bonds to equities. Therefore, investors in the current speculative environment should be extremely defensive and not be tempted by short-term gains, which could be swiftly erased. Daily moves of 5 per cent in investment markets will become common. Nickel recently fell 8 per cent in a day, copper by 5 per cent, and the euro by 5 per cent within a week. Gold and, especially, silver may offer some protection but, once the current asset inflation bubble ends, they could also be in for a rough time. Obviously, as I experienced in Asia in the 1990s, it wasn't important to be "asset-rich" before the crisis of 1997 but to be "cash-rich" after the crisis when financial asset values had tumbled by 90 per cent and when incredible bargains across all asset classes were available.